Stock Review

Political uncertainty negatively impacted Pakistan’s equities market. The benchmark index of Pakistan Stock Exchange (PSX) touched a low of 43,043 points, but finally managed to close the week at 44,337, posting a decline of 1.96% WoW. Major news flows affecting the market during the week ended 14th July 2017 included: 1) KEL unveiling its US$1.00 billion investment plan to set up a new 900MW power plant, 2) cement dispatches during FY17 rising by 3.71%YoY to 40.315 million tons, 3) workers’ remittances posting a decline of 3.08%YoY were reported at US$19.30 billion and 4) trade deficit widening by 36.32%YoY to US$32.578 billion for FY17. While imports exceeded US$53 billion, exports could fetch US$20.448 billion only. Average daily traded volume improved by 5.24%WoW to 174.66 million shares. Volume leaders for the week were: KEL, TRG, BOP, EPCL and ASL. While gainers were: GWLC, EFERT, NBP, PPL and FFC, scrips losing most during the week were: HCAR, PSMC, CHCC, ICI and LOTCHEM.

Investors are expected to remain on sidelines next week due to political turmoil.

In the backdrop of Qatar-Saudi Arabia conflict, Pakistan and Iran have agreed to finalize the details of an agreement on trade in goods before the next meeting of the Trade Negotiation Committee (NTC), scheduled at Tehran in November 2017. It was decided at the second meeting of the NTC on Pak-lran Free Trade Agreement held on 11-12 July 2017 in Islamabad. Pakistani side was led by Bilal Khan Pasha, whereas Mirhadi Seyedi led Iranian team. Pakistan reiterated the desire to conclude an FTA with Iran in line with the vision of the top leadership of the two countries that has signed a Memorandum of Understanding (MoU) on the Pak-lran 5-Year Strategic Trade Cooperation Plan 2016-2021 in March 2016. The Iranian delegation appreciated the spirit behind the FTA and expressed hope for early finalization of the Agreement. There were discussions on composition/architecture of the agreement on trade in goods. The two sides agreed to have more discussions keeping in view the need to make certain amendments. Both sides retained their rights to add or delete and correct some articles further, with mutual consent.

Moody’s Investors Service has affirmed Pakistan’s B3 rating and maintained a stable outlook in its Global Credit Research released recently. According to Moody’s credit analysis, although Pakistan’s medium-term growth outlook backed by the China-Pakistan Economic Corridor (CPEC) appears strong, the government’s debt burden is high and fiscal deficits remain relatively wide. Moody’s credited the CPEC and International Monetary Fund’s three-year Extended Fund Facility program for a strengthened outlook for growth. It also identified that despite being stronger than a few years ago, the foreign fund adequacy is still vulnerable to any significant increase in imports. Interestingly, Moody’s also mentioned domestic politics, along with geopolitical risks, as constraints on rating. The analysis stated that during the fiscal year ended 30th June, 2016, real GDP growth reached 4.5 percent, up from 4.1 percent in both fiscal years 2015 and 2014. Although, Moody’s expected that real GDP growth would rise to 6 percent over the next few years, as CPEC-related projects materialize, it expressed fears that the economic impact could be slower than the government’s expectations.

Nestle Pakistan, a leading producer of nutrition, health and major products firm, with special focus on the dairy industry, unveiled plans to expand its business in the agriculture sector by investing in the development of farming communities in the rural areas of the country. After a recent visit to Mango Research Institute (MRI), Multan Nestle team informed that it has collaborated with the MRI to facilitate the local farmers grow several new varieties of mango by using the latest technology. This is being done by creating awareness among the mango farmers about the positive impact of the deployment of the latest technology. In the first phase, Nestle has identified 8 mango farms, which are being provided with the latest technology to improve yields. In the second phase, these services will be extended to another 17 farms.

The automotive industry is often referred as one of the key indicators of Pakistan’ flourishing economy, though the beneficiaries constitute less than 2 percent of total population. There seems a huge mismatch in the prices of cars and per capita income of people. The market is still dominated by Japanese cars, be it new or second hand. Despite, lucrative offers by the successive governments, the number of new entrants has remained almost zero. This may also suggest that the industry still suffers from high cost of production due to low capacity utilization and high tax rate on CKD/SKD kits. During the month of June 2017, the total automotive sales were 16,184 units. During the outgoing financial year (FY17) the total industry sales remained almost flat at 221,748. Bulk of the sales comprised of passenger cars/trucks/tractors, while LCVs & pickups lagged mostly due to high base effect.

Bearish stock market sentiments kept prices of shares of listed automotive companies low but attractive. PSMC remained under focus due to the demand of cars offered under the Government of Punjab scheme, sturdy margins on CBU’s and successful reception of its newly launched Cultus. May sales decline of around 10 percent could be attributed to: 1) expectations of new model launch and facelift keeping demand low, 2) unveiling of adverse budgetary measures to be introduced during FY18 and 3) Ramazan phenomenon, shorter working hours. PSMC emerged as the best performer with sale of almost 9,000 during the month under review, as the Rozgar Scheme of the Government of Punjab played a key role. Passenger cars offerings fared better than LCV’s & pickups as compared to Wagnar/Cultus/Ravi/Bolan sales.

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